EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

Thermal Store and Time-of-Day Pricing

Tax departments with company facilities in high electricity cost markets can
help their facility’s managers to use Energy Policy Act (EPAct) tax
incentives for new thermal storage systems and for further expanded Heating,
Ventilation and Air Conditioning (HVAC) tax incentives related to existing
thermal storage systems.

Thermal storage systems make ice at night during off peak hours when rates
for electricity are typically cheaper as opposed to daytime peak hours when
electricity costs (particularly in high cost electric markets) are
substantially higher. Throughout the nation, there are major areas that have a
difficult time producing enough electricity during the daytime summer periods
when the demand for air conditioning use is the highest. The EPAct tax
provisions astutely encourage property owners to overcome the electricity price
differential by capitalizing on the so called time of day pricing difference
with thermal storage systems. As set forth under the Electricity Section of the
Energy Policy Act of 2005, each electric utility must offer each of its
customers a time-based rate schedule1. Consequently, all US property owners
have the opportunity to use time of day pricing to their advantage to avoid
high electricity costs during peak time periods.

Tax departments with large property portfolios need to be cognizant of when
their respective facilities may be considering or have already purchased
thermal storage systems. Some leading brands of thermal storage systems include
Calmac (http://www.calmac.com/), Baltimore Aircoil
(http://www.baltimoreaircoil.com/) and Ice Energy
(http://www.ice-energy.com/Default.aspx). Because thermal storage systems save
so much daytime electricity use, state and local utility programs will often
provide large rebates for thermal storage systems.

The Tax Opportunity

New thermal storage systems, particularly when installed with new high
efficiency chillers and package units, are often eligible for tax deductions
which can be achieved in either one of two ways. As discussed in one of our
previous articles, “New Efficient HVAC Drives Large Tax Deductions for
Buildings,” immediate EPAct HVAC tax deductions of 60 cents per square
foot are available for achieving a 16.67% energy cost reduction compared to the
ASHRAE (American Society of Heating, Refrigeration and Air Conditioning
Engineers) 2001 building energy code standard. Another option for achieving a
tax opportunity is a $1.80 per square foot whole building tax deduction when
the thermal storage system results in the overall building having a 50% energy
cost reduction compared to ASHRAE 2001 standards.

Existing thermal storage systems present tremendous overall energy tax
savings opportunities using the HVAC free riding concept. With free riding, any
additional HVAC investment that either reduces energy usage or increases the
energy cost reduction so that it achieves or exceeds a 16.67% cost reduction
will qualify for the 60 cent per square foot tax deduction. The chart below
demonstrates how even small equipment efficiency improvements, when combined
with Time of Day Pricing and Thermal Storage can generate the requisite cost
improvement to qualify for the 60 cent per square foot tax deduction.

Existing thermal storage systems in buildings at the 50% energy cost savings
threshold can use the EPAct whole building free riding concept to obtain a 1.80
per square foot tax deduction for a wide range of further energy cost reducing
investments. To utilize this opportunity, a new further energy reducing
investment must occur during an EPAct year. Accordingly, tax managers dealing
with facilities that already have thermal storage systems should give strong
consideration to making further energy cost reducing investments before
December 31st, 2013.

Central Plant and District Thermal Storage Systems

Large scale storage systems are sometimes used in central plants supporting
multiple buildings or district wide systems supporting multiple independent
buildings. When thermal storage is used with these systems, there is an
opportunity for tremendous HVAC and whole building tax savings for every
building supported by the central plant thermal storage system. One of the most
prominent examples of this type of large scale ice thermal storage system is
the Northwind Phoenix cooling system in Phoenix, Arizona. This cooling system
serves buildings ranging from 3,000 to more than 1,900,000 square feet3. As of
July 2009, Northwind Phoenix serves 12,863,008 square feet of Downtown
Phoenix4.

Conclusion

The Energy Policy Act of 2005 time of day pricing mandate means that time of
day pricing electricity cost savings will be available throughout the country.
This means that property owners who already have existing thermal storage
systems or are contemplating thermal storage systems have the opportunity to
obtain large tax deductions for qualifying building projects completed before
December 31st, 2013.